7 Reasons Why Jo Might Have Got a Mortgage Decline - RiteMortgages

7 Reasons Why Jo Might Have Got a Mortgage Decline

Jo has been renting a tiny apartment since she left home and living the life of a hermit crab. It’s been that long since she was last out her friends think she might have emigrated and she has watched everything there is to see on Netflix! But, it’s been worth it. Jo has saved a deposit and with a mortgage is ready to buy her first place. Her very own. Excitedly she books an appointment with her banks branch to speak to their “mortgage adviser”. After waiting a couple of weeks she has a brief chat with the mortgage adviser who then tells Jo that she has been declined for a mortgage! Why? The computer says so! Deflated, confused, Jo is not sure what to do. Then she realises that the “mortgage adviser” only works for that one bank and he looked like he left school a few years after her and he probably doesn’t even know why Jo got declined.

You see there are many banks that lend mortgages, most of them do not have branches and for those that aren’t on your high street you need to speak to a whole of market mortgage adviser, preferably one that is independent and can solve a puzzle. That’s what we do. We solve problems, making our clients more presentable to the banks underwriter to make them a better risk for borrowing hundreds of thousands of pounds. Unfortunately for the average first time buyer property costs have grown higher and higher and saving for a deposit may seem like the largest hurdle to overcome. However with strict lending criteria, many first time buyers are struggling to secure a mortgage even though they have a deposit.

Assuming Jo’s got no bad credit let’s look at the possible reasons why Jo got declined and what we can do to help….

A Lack Of Credit History

If you’ve never had any debt or even a credit card, you may think banks and mortgage lenders will consider you to be a sensible spender. However, having a limited or non-existent credit history can actually work against you and sometimes do more harm than good. Lenders like to see a track record that you are able to repay any money you borrow. By looking at your credit history and seeing you’ve successfully used credit in the past, i.e. borrowed and repaid, lenders gain an insight into your ability to manage your finances.

To avoid a lack of credit history declining your mortgage application, it can help to start using credit while you’re saving for a deposit. Make sure you pay it all off every month, ta save on expensive interest payments, a store or credit card is often enough but don’t apply for several at once; do not take out unnecessary loan or debt to buy something you cannot afford otherwise and never, ever use payday loan.

Jo’s Self-Employed

Self-employed, sole trader, directors and contractors can find it more difficult to be accepted for a mortgage than someone with the same income employed full-time. Its harder to prove a track record or earning since the self-employed generally face income fluctuations, especially in the early years and lenders get concerned about your ability to keep up with regular mortgage repayments when your business may be struggling. It helps if you use a chartered accountant, have a clean credit history, a minimum of one year’s self-assessment tax returns, a year’s contract if you’re a contractor, good records and a deposit of over 10% of the purchase price

But I Earn Good Commission

Similar to being self-employed salespeople often get punished for not having guaranteed salaries or fluctuations in income. If you’re payslip is mostly made up of commission keep good records, payslips for over a year and P60’s for the last 3. Its essential we prove a track record of earning otherwise lenders can restrict your affordability based on your basic salary and an average of your last 3 months commission halved!

Contractors Are Basically Employees…

Not if you are responsible for paying your own tax! If you are an IT contractor or off shore worker the potential earnings can be huge for those willing to live contract to contract but it can often mean that its hard for us to prove you will be able to pay your mortgage in a years’ time. A long contract can help but similar to self-employed or commission based salespeople contractor mortgages rely on a track record and the industry specifics to demonstrate to the underwriters that you are likely to be earning for the foreseeable future.

I’ve Never Voted In My Life, I Don’t Trust Politicians!

If you haven’t registered to vote and you’re not on the voters roll you will struggle to convince a lender to approve your mortgage application without ticking a lot of other boxes. Banks and lenders use the voters roll to conduct identity checks so they can ensure you are the person you claim to be and live where you say you do. It tracks your movement property to property, over time and is recorded on your credit file. Lenders will ask why you are not registered to vote and only when you are able to substantially prove that you have lived there for as long as you say you have will they consider a loan. We have cases where they have requested proof of address going back 5 years

You Have Recently Changed Jobs

New job, pay rise, lucky you… Believe it or not some lenders will refuse to approve a person’s mortgage if they have started a new job or are in probation. If you have been with your new employer for a minimum period of time, usually less than 6 but sometimes up to 12 months, check your contract. Are you in a probationary period? Some lenders insist on a minimum of 12 months continuous employment with the same employer, others decline any applicant in probation, zero hour contracts and tough to navigate. Let us know we normally can find a solution but every lender is different.

Oh That Was My Boyfriend / Girlfriend / Wasn’t Me

If you are financially linked to someone else it’s called a financial association. You could have had joint credit account like a bank account or loan, and if you are still linked and that person has a really bad credit history, it could affect you too. It will impact on your ability to borrow money at the best rates. Even if you are now separated you should disassociate by writing to credit reference agencies and asking for a notice of disassociation. Conversely if you want to apply for a mortgage with a friend or partner and they have a poor credit rating, your application could be rejected even if you earn enough and have a deposit, and you will be associated with them thereafter!
Our advice is before applying for a mortgage is to check your credit report with one of the three main credit reference agencies, Experian, Equifax and Call Credit. It will tell you and us a lot about how the lender will assess your credit worthiness and how you look to them. It is also worth remembering that if you apply for a mortgage and get rejected, it could have an impact on your credit rating and affect your future chances of gaining credit. Our job is to get it right first time. The more organised you are and the more information we have available to us makes it more likely you will get the mortgage you need at the best mortgage rates available and that in no time at all you will be relaxing back in front of the TV in your new very own home!
Disclaimer – This does not constitute financial advice. Please speak to a professional adviser for information specific to your needs and circumstances.
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